Hollande Strives to Overcome French Technology Death Valley

In 1973, Frenchman Francois Gernelle built the world’s first micro-computer. In the decades after, France looked on as International Business Machines Corp. and Apple Inc. spawned a multi-trillion dollar industry around it.

French business history is strewn with such examples of missed opportunities. From the Internet-precursor Minitel to Francois Mizzi’s touchscreen patents in the 1980s, France has repeatedly failed to turn ideas and research into money-making global products, leaving others to ride away with the prize.

The European Union’s largest producer of math, science and technology graduates needs to get out of “the death valley between what’s developed in a lab and its future as a successful product or company,” said Louis Gallois, former head of Airbus parent European Aeronautic Defence and Space Co. and now France’s competitiveness czar.

Building on a decade-long effort, President Francois Hollande’s government is seeking to put in place plans to squeeze more out of the country’s innovations and image. The latest effort to end Europe’s second-largest economy’s recession and reverse record joblessness is a state-commissioned report dubbed “Brand France” that will lay out by the end of June ways to wring more from the nation’s research, patents and other intangible assets.

“France has research labs with Nobel prize winners, strong brands, museums; what it needs is to figure out how to cash in by turning it all into jobs, growth and startups,” said Christian Nguyen, managing partner of Marks & Clerk, which advises companies and governments on intellectual property.

‘Great Assets’

The record so far has been far from stellar.

Take France’s largest carmaker PSA Peugeot Citroen SA. Its distinction as the country’s most innovative company -- topping the list of patents for the last five years with everything from “hybrid air” engine technology to “magicwash” for cleaner windshields -- did little to prevent it from posting a record 5 billion-euro ($6.5 billion) loss last year.

Gernelle’s microprocessor-powered micro-computer, dubbed Micral, wasn’t any different. R2E, where he worked, was taken over by Groupe Bull, which relegated the machine to niche markets like toll booths. Efforts to elbow into the PC mass-market later failed, making Bull, which chalked up losses for years, a bit player.

“The French invented the micro-computer, but they didn’t know how to market it,” said Tomasz Michalski, an economics professor at HEC business school near Paris. “France has great assets. It just doesn’t use them efficiently.”

French Hurdles

Inventions are encouraged with events such as Concours Lepine, a century-old annual contest held last month in Paris. The fair generated early versions of the flatiron, the ballpoint pen and the artificial heart, alongside quirky gadgets to help do everything from scratch backs to pick up dog poop.

Where France fails is in taking a good idea and building a business around it, said Nguyen.

“Mentalities still need to evolve,” he said. “It’s time to let go of the idea that science for science is better than science for money.”

Efforts have been made over the last decade to get state-backed research entities and industry to work together. Most public labs, universities and engineering schools have structures to manage patents or incubators to help startups.

Still, “to turn an idea into money, you need entrepreneurs and you need investors who’ll put in money to back a new technology and develop it into a product,” said Vincent Bouatou, deputy head of research and technology at Morpho, a unit of aeronautics and defense group Safran SA.

Squeezing More

France’s private equity association Afic last year said the lack of capital available to finance small and medium-sized companies had become an “emergency.” The amount of such capital in 2012 in France was $6.5 billion, less than half the $17.6 billion in the U.K. and a fraction of the $126.3 billion in the U.S.

Investment in France is less attractive because of high labor-related costs and conditions and taxes that are both elevated and constantly shifting, according to a report published today by Ernst & Young.

After speaking out against finance during his election campaign and targeting wealthy taxpayers with a so-called “millionaire tax,” Socialist President Hollande more recently has attempted to win over the country’s entrepreneurial classes as part of a move to boost France’s competitiveness.

In April, he said he’ll lower the capital-gains tax to “compensate investment and risk taking” by entrepreneurs.

Strategic Assets

Gallois’ competitiveness plan includes making state funds available to monetize research through bodies such as Societes d’acceleration du Transfert de Technologies and Consortiums de Valorisation Thematiques. As France seeks ways out of recession and a 14-year-high unemployment rate, getting more bang for each research buck is among items high up on its list.

The “Brand France” report, ordered in January, is partly a brainchild of Industry Minister Arnaud Montebourg, who last year pushed the “Made in France” campaign, posing before the French flag to promote local products. More recently, he blocked the sale of “strategic” video site Dailymotion, a Youtube rival, to the U.S.’s Yahoo! Inc.

The report seeks to list how France can use its intangible assets -- image, history, brands and culture -- to boost exports and narrow the near-record trade gap.

Licensing patents to companies abroad is one way to increase exports, said Beatrix de Russe, an executive vice president for intellectual property at Technicolor SA.

Licensing Patents

The company, one of France’s most-active on patent filing, has 220 people in Paris dissecting gadgets from technology giants like Apple, Samsung Electronics Co. and HTC Corp. to spot infringements and strike new licensing deals.

“Licensing is important in our company’s finances -- it’s how we pay for more research and continue to innovate,” de Russe said. “What’s less obvious is it’s also important for France. It’s reflected in the trade balance.”

The company, which in 1939 invented the process for color movies used in “The Wizard of Oz” and now sells special-effects software to film studios, last year had 512 million euros in licensing revenue.

The licensing unit, its most profitable, helped the company navigate a restructuring and survive six straight years of net losses as it refocused business from hardware to services.

So when France needed someone to head a sovereign fund for licensing patents in 2011, it turned to Jean-Charles Hourcade, a former research and patents chief at Technicolor.

State Driven

The French public-financed initiative, the first of its kind in Europe, has drawn interest from neighbors Germany, Spain and Italy, as well as the European Commission, Hourcade said.

“The idea of state-defined industrial policy strikes a chord in France,” said Hourcade, who heads the France Brevets investment fund. “The high-speed TGV train, nuclear power, the Minitel... They all came from state investments. The state is adapting its strategy to a more digital world, but the thinking behind it is the same.”

When Alcatel-Lucent put its patents up as collateral in December for a loan underwritten by Credit Suisse Group AG and Goldman Sachs Group Inc., the French state tried to step in.

Although the 2 billion-euro funding deal went through, the state is keeping a wary eye on the 30,000 patents, including for voice recognition and video conferencing, valued at 5 billion euros in an analysis by Global IP Law Group.

‘Common Language’

The government has set strict financial goals and expects returns for the state patents fund, Hourcade said. His objective of return on investment has been set at 8 percent.

France Telecom SA, which holds 7,500 patents in telecommunications, software and Internet technology, has generated 300 million euros from licensing in the past 10 years.

“Intellectual property is the common language for partnerships, setting industry standards, sharing technology and allowing analysts and investors to measure your ability to innovate,” said Luc Savage, who heads the company’s intellectual property and licensing business.

Former France Telecom CEO Thierry Breton, who was finance minister between 2005 and 2007, was instrumental in creating an agency to help value brands -- including institutions such as the Louvre museum and Sorbonne University -- and patents.

“The intangible economy isn’t only patents; it’s also software, drawing, design, culture, brands, luxury... It’s creativity in all its forms,” said Gilles Grapinet, who served as an adviser to Breton at the ministry. “There’s no measure for that, but France has some of the world’s best.”

Creating Value

France has shown it can turn a local invention into a global success. Chips developed by Frenchman Roland Moreno and patented in 1974, are now used in bank cards and mobile phones. They’ve made Gemalto SA the world’s biggest maker of smart cards, with sales of 2.2 billion euros in 2012.

Such cases are few and far between.

“We need entrepreneurs -- people who can take an innovation and turn it into a marketable product,” said Yann Magnan, managing director at Duff & Phelps, which helps clients evaluate intangible assets. “Whatever the innovation, if there’s no one to make something out of it, it becomes the worst case scenario: a total absence of value.”

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